Tuesday, February 03, 2009

As bad as things were for investments last year, that is, for everything other than short funds, Treasuries, and gold, if you owned a home it was even worse. Zillow reported that the U.S. housing market declined $3.3 trillion in value last year - that's about $11,000 for every man, woman, and child in the country.

More homeowners than ever before now owe more than their house is worth and there are no signs of the price declines slowing down, though someday they surely will.

According to this story in Bloomberg, Stan Humphries, Zillow's vice president of data and analytics said, "It’s like a runaway train gaining momentum. It’s difficult to say when we’ll see a bottom to the housing market."

As far as the destruction of what we once fondly called "home equity" is concerned, things are much worse than the headlines would indicate since home equity losses come right off the top for homeowners and these percentage declines can be devilish.

Say, for example, you owe $300,000 on a house that used to be worth $500,000 and, after last year's decline, it's now worth $400,000. While your home's value only went down 20 percent, your home equity went down 50 percent.

After another 20 percent decline in home values this year (which looks quite reasonable in many areas) that's a 40 percent decline for your property but it completely wipes out what we used to affectionately call "housing wealth".

That's the stuff that was supposed to pay for the kid's college and your retirement.

Humphries continued, "A witch’s brew of economic insecurity, foreclosures and tightened lending standards are helping to keep hard-hit markets down and to widen the scope of markets showing declines. Negative equity will trigger new foreclosures, and that will add to inventory and depress prices".

It's no wonder that families are moving back in together - once the economy turned south and people started losing their jobs, who could afford those $5,000 mortgage payments.

Certainly not Mr. Tixe of Queens, whose family is featured in this USA Today report.

Last year, Kanessa Tixe's dad had just finished building a three-family house when he lost his superintendent job in February. He wasn't sure how to make the $5,000-a-month mortgage on the new house in Queens, N.Y.

So Tixe and her siblings decided to help out in an unusual way: They moved in. In December, her father moved into the first floor; her stepsister and husband moved into the second floor; and her stepbrother and Tixe took the third floor. The entire family has become roommates, banding together to pay rent and help their dad with the mortgage until he finds long-term tenants.

"We're still living there now. Times are rough," says Tixe, 26, a publicist. "It's been very beneficial that we're all together. My stepbrother and I have a wonderful relationship now. We eat together for dinner, and I've become closer to my dad, too. This is an important time for family to help, the way the housing market is going. Our story is a testament to how families should come together to help with a mortgage."

Well, never let it be said the bursting of the housing bubble doesn't have at least a tiny little silver lining - it's bringing families closer together.

Similar things are undoubtedly going on out here on the West Coast. All those people who bought homes in Riverside and San Bernardino County a few years back - what today is "ground-zero" for the Southern California real estate bust - many of them are probably back living with relatives somewhere in Los Angeles County now.

As for the rust belt - that part of the country that had the unfortunate luck of getting a housing bust without the preceding boom - Luke Mullins at U.S. News & World Report points his readers to a story in the Toledo Blade that has an elected official counseling her constituents to become squatters instead of moving out when the sheriff comes knocking on their door.

After you stop making payments, Rep. Marcy Kaptur recommends the following:

"I'm saying to them possession is 99 percent of the law; you stay in your house," Miss Kaptur said yesterday, continuing a crusade she started several weeks ago in Congress and CNN picked up Thursday night...

She urged homeowners not to panic and leave their home just because they receive a foreclosure notice from their lender, and she said they should demand that the mortgage-holder produce a mortgage audit.

"I say to the American people, you be squatters in your own homes. Don't you leave," she said during a speech in Congress earlier this month.

This kind of stuff used to be great fun to write about but, in 2009, the housing bubble just isn't very funny anymore.

I'm from the Toledo area, and I think Marcy Kaptur is hilarious. She's the same one who thought Ben Bernanke was Hank Paulson.

But this is probably good advice for a lot of people. I wouldn't be surprised if two years from now, figuring out how to establish title to a bank-owned home without paying anything to the bank is a bigger industry than creating and selling synthetic CDO's.